Cost Segregation Case Study

The Marshall & Stevens Cost Segregation Practice was retained by an investment bank that had recently entered in agreement to acquire a 30MWAC solar farm in Georgia that was still under construction via a tax equity investment transaction. The purchase price was partially contingent on the economics of the facility, which in turn was partially driven by the amount of the federal Investment Tax Credit (“ITC”) provided under the guidance of the Internal Revenue Code Section 48 (“IRC §48”). The IRS’s application instructions for the ITC suggest that the application be accompanied by” an accounting of your basis in the energy property.”

Case Highlights

  • Analyzed all pertinent agreements related to the project (purchase agreement, ground leases, easements, interconnection agreement, power purchase agreement, etc), as well as the construction drawings and specifications.
  • Conferred with the Engineering, Procurement & Construction contractors and the developer to prepare an accurate development cost model.
  • Identified three levels of soft costs in order to properly allocate overhead to the appropriate direct costs.
  • Assigned all component costs to an appropriate tax category, citing and discussing the pertinent tax code, IRS Notices, Revenue Rulings, and case law.

By engaging the Marshall & Stevens team, our client was able to present a detailed and thoroughly vetted report to accompany their ITC application. This provided a level of confidence in the anticipated credit required for the client’s due diligence and transaction underwriting process. Our report identified 98.2% of the transaction price as the eligible basis for the ITC.

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